Complexity and Crisis in the Financial System Critical Perspectives on the Evolution of American and British Banking
Critical Perspectives on the Evolution of American and British Banking
Edited by Matthew Hollow, Folarin Akinbami and Ranald Michie
Chapter 2: Entrepreneurial failure and economic crisis: a historical perspective
AbstractThis chapter analyses the major UK economic crises that have occurred since the speculative bubbles of the seventeenth century. Crises are usually considered to be financial, but historical evidence suggests that their origins are often real. Real effects involve too much investment in some sectors, too little investment in others, and often too much investment overall. These mistaken investment decisions originate in flawed judgements made by entrepreneurs acting under the influence of simple and misleading ideas. The financial aspects of a crisis are often the consequences of a real crisis, aggregated by defaults on fixed-interest debt and the consequent dislocation of the banking system. The evidence suggests that major crises often involve excessive investment in specific sectors that were considered at the time to be of great strategic importance. Whilst some crises were caused mainly by failures of government policies, failures of privately funded schemes created the most serious problems.
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